de facto relationships under the family law...
TRANSCRIPT
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De Facto Relationships under the Family Law Act:
12 Months On
Written by Mark MacDiarmid, Accredited Specialist in Family Law, Coleman Greig
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Contents
Introduction....................................................................................................................................................... 1
The Referral of State Power ......................................................................................................................... 1
What Constitutes a De Facto Relationship?............................................................................................. 4
Prerequisites for an Application Under the De Facto Provisions of the Family Law Act ......... 6 Length of Relationship ...............................................................................................................................................6 Timing of Breakdown.................................................................................................................................................6 Geographical Requirements ....................................................................................................................................6 The Effect of Marriage ................................................................................................................................................7
Opting In ............................................................................................................................................................. 8
Property Settlement and Maintenance..................................................................................................... 9 The Absence of a S 85A Equivalent ..................................................................................................................... 11
Binding Financial Agreements for De Facto Couples.........................................................................13 Setting Aside BFAs .................................................................................................................................................... 15 The Formal Aspects of the Agreement............................................................................................................... 16 Making financial agreements binding prior to 4 January 2010................................................................ 18 Federal Justice System Amendment (Efficiency Measures) Act 2009..................................................... 19 The current position................................................................................................................................................ 21 The termination of financial agreements. ........................................................................................................ 22 Conclusion................................................................................................................................................................... 22
Case Note: Kostres & Kostres [2009] FLC ¶93-420.............................................................................24
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About Writer:
Mark MacDiarmid is an accredited specialist who was admitted as a solicitor in 1989 after graduating with
degrees in Arts and Law from the University of Sydney. For the first ten or so years of his career, Mark worked
in the Sydney CBD, at various times combining family law, commercial litigation (including a long running Trade
Practices Act dispute between two newspapers), general commercial work and the provision of ASX and ASIC
compliance advice to listed corporations.
In 2001 he left his then position as a Director of a national law firm, and moved to the Blue Mountains where he
became Principal Solicitor at Elizabeth Evatt Community Legal Centre, a non-government organisation that
predominantly provided family law advice across the Bathurst, Oberon, Mudgee, Greater Lithgow and Blue
Mountains regions.
In addition to his strong credentials in family and commercial law, Mark holds a Postgraduate Diploma of
Psychology from Charles Sturt University, and has taught interpersonal skills to a variety of groups including
lawyers, community welfare students, and special needs teachers.
His recent published journal articles have focussed on Binding Financial Agreements, family dispute resolution
and human rights law.
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De Facto Relationships under the Family Law Act: 12 Months On
Mark MacDiarmid, Accredited Specialist in Family Law, Coleman Greig
Introduction The de facto changes were introduced by the Family Law Amendment (De Facto Financial Matters
And Other Measures) Act 2008 (“the 2008 Act”) and came into effect on 1 March 2009.
Nearly 18 months later there is still very little direct case law on the amendments, although there are at
least two cases that have particular, though indirect, relevance to this area. These cases are Kennon v
Spry1 and Kostres and Kostres2 and will be dealt with in detail below.
The geographical issues flowing from the failure of all States to refer their powers have now been
resolved to the degree that they are going to be in the foreseeable future, with South Australia having
referred powers under the Commonwealth Powers (De Facto Relationships) Act 2009. Western
Australia has not, but since the Western Australian Family Court Act 1997 effectively includes most of
the significant provisions of Part VIIIAB of the Commonwealth Family Law Act 1975, similar laws are
now available to de facto couples across the country.
Nevertheless, the powers referred by the States are not all encompassing and there are necessarily
differences in the nature of de facto and marriage relationships. It was not therefore possible for
Parliament to fold the de facto provisions into the current Family Law Act to form a seamless whole.
There are subtle differences particularly in the financial agreement provisions, and there is no s 85A
equivalent. Particularly in the light of comments by Kiefel J in Kennon v Spry3, this may be turn out to
be a highly significant omission.
It should be noted that the existence or not of a de facto relationship is significant in relation to the
surrogacy provisions contained in s 60H, which makes the meaning of such relationships as set out in
s 4AA a significant issue. However, the primary emphasis in this paper will be on financial matters.
The Referral of State Power Without a relevant referral of powers pursuant to paragraph 51(xxxvii), the Federal Parliament lacks
the power to include de facto property matters in the Family Law Act. Accordingly, the 2008 Act
inserted a device for the participation of the States and the potential referral of their powers into the
Family Law Act. This is contained in s 90RA, which reads as follows:
(1) For the purposes of this Act, the following are the participating jurisdictions:
(a) each referring State;
1 [2008] HCA 56. 2 (2009) FLC ¶93-420. 3 [2008] HCA 56.
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(b) each Territory.
(2) A State is a referring State if:
(a) the Parliament of the State has referred, or refers, to the Parliament of the Commonwealth
financial matters relating to the parties to de facto relationships arising out of the breakdown
of those de facto relationships; and
(b) the referral of the financial matters is made:
(i) for the purposes of paragraph 51(xxxvii) of the Constitution; and
(ii) to the extent that the financial matters are not otherwise included in the legislative
powers of the Parliament of the Commonwealth (otherwise than by a reference under
paragraph 51(xxxvii) of the Constitution).
According to the definition in s 4(1) of the Family Law Act, "financial matters" means:
(b) in relation to the parties to a de facto relationship--any or all of the following matters:
(i) the maintenance of one of the parties;
(ii) the distribution of the property of the parties or of either of them;
(iii) the distribution of any other financial resources of the parties or of either of them.
NSW had already referred its powers under the Commonwealth Powers (De Facto Relationships) Act
2003 (‘the Referring Act’). The relevant provision is s 4:
(1) The following matters, to the extent to which they are not otherwise included in the legislative
powers of the Parliament of the Commonwealth, are referred to the Parliament of the
Commonwealth for a period commencing on the day on which this Act commences and ending on
the day fixed, pursuant to section 5, as the day on which the references under this Act are to
terminate, but no longer:
(a) financial matters relating to de facto partners arising out of the breakdown (other than by
reason of death) of de facto relationships between persons of different sexes,
(b) financial matters relating to de facto partners arising out of the breakdown (other than by
reason of death) of de facto relationships between persons of the same sex.
The differences in the definitions contained in the Family Law Act and the Referring Act are highly
suggestive. Following are some of the definitions contained in the Referring Act:
de facto partner means a person who lives or has lived in a de facto relationship.
de facto relationship means a marriage-like relationship (other than a legal marriage) between two
persons.
financial matters, in relation to de facto partners, means any or all of the following matters:
(a) the maintenance of de facto partners,
(b) the distribution of the property of de facto partners,
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(c) the distribution of any other financial resources of de facto partners, including prospective
superannuation entitlements or other valuable benefits of or relating to de facto partners.
property means any legal or equitable estate or interest (whether present or future and whether vested
or contingent) in real or personal property of any description and wherever situated, including money or
choses in action.
The NSW definitions appear to be broader than those contained in the Family Law Act; they are
certainly different. For example, compare the definition of ‘property’ in the Family Law Act:
"property" means:
…
(b) in relation to the parties to a de facto relationship or either of them--means property to which those
parties are, or that party is, as the case may be, entitled, whether in possession or reversion.
Choses in action are not specifically mentioned as they are in the Referring Act definition, though
some, if not all, choses in action have certainly been found to be property under the Family Law Act4.
The question of whether the referred powers are broader or narrower arises because subsection 3 of s
90RA reads as follows:
(3) To avoid doubt, a State is not a referring State if its Parliament has referred, or refers, to the
Parliament of the Commonwealth only a limited class of the matters referred to in paragraph
(2)(a).
Given the limitation of the reference of power (ie, to matters relating to de facto partners arising out of
the breakdown, other than by reason of death, of de facto relationships), it has to be wondered if the
cases will find an exact match between de facto financial causes and matrimonial causes in the
application of principles of accrued and associated jurisdiction. In this regard, according to the Full
Court in Warby v Warby5, the Family Court
is not restricted to the determination of a family law claim or proceeding; it may exercise accrued
jurisdiction to determine the non-federal aspects of a justiciable controversy of which the family law
claim or cause of action forms a part.6
Nevertheless, the Full Court also noted that a relevant consideration to the Court’s decision to exercise
its accrued jurisdiction is “whether the claims are non-severable from a matrimonial cause and arise
out of a common sub-stratum of facts.”7 The extent of the available accrued jurisdiction (which derives
from ss 76(ii) and 77 of the Constitution) remains somewhat untested in the Family Court, although
4 Compare Kennon v Spry [2008] HCA 56 which found property subsisted in, for example, a beneficial object’s right to due consideration as a beneficiary by the trustee of a beneficial trust, and In the marriage of Zorbas and Zorbas (1990) FLC ¶92-160 which found that a bare right to sue (certainly a type of chose in action) was not property. 5 [2001] FamCA 469. 6 [2001] FamCA 469 at para 79. 7 Ibid, para 95.
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given the decision of the High Court in Re Wakim8 (which rendered the cross-vesting scheme
unconstitutional), accrued jurisdiction presents an important source of additional jurisdiction to the
FCA.
It may well be argued that a de facto ‘matter’ has different boundaries to those relating to a matrimonial
cause, with the result that this additional source of jurisdiction may have different effects across Parts
VIII, VIIIA and VIIIAB.
What Constitutes a De Facto Relationship? The 2008 Act inserted a new s4AA which provides the following guidance on this central question:
(1) A person is in a de facto relationship with another person if:
(a) the persons are not legally married to each other; and
(b) the persons are not related by family (see subsection (6)); and
(c) having regard to all the circumstances of their relationship, they have a relationship as a
couple living together on a genuine domestic basis.
Paragraph (c) has effect subject to subsection (5).
So what are the relevant circumstances referred to in subsection 1(a)? Subsection 2 is headed
‘Working out if persons have a relationship as a couple’, and, absent a reference to ‘the procreation of
children’, the matters listed are largely drawn from the one provided by Justice Powell in Roy v
Sturgeon [1986] 11 Fam LR 271 at 274:
(a) the duration of the relationship;
(b) the nature and extent of their common residence;
(c) whether a sexual relationship exists;
(d) the degree of financial dependence or interdependence, and any arrangements for financial
support, between them;
(e) the ownership, use and acquisition of their property;
(f) the degree of mutual commitment to a shared life;
(g) whether the relationship is or was registered under a prescribed law of a State or Territory as
a prescribed kind of relationship9;
(h) the care and support of children;
(i) the reputation and public aspects of the relationship.
8 (1999) 198 CLR 511. 9 Registration of relationships is currently available in Tasmania, the ACT and Victoria.
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(3) No particular finding in relation to any circumstance is to be regarded as necessary in deciding
whether the persons have a de facto relationship.
(4) A court determining whether a de facto relationship exists is entitled to have regard to such matters,
and to attach such weight to any matter, as may seem appropriate to the court in the circumstances
of the case.
(5) For the purposes of this Act:
(a) a de facto relationship can exist between 2 persons of different sexes and between 2 persons
of the same sex; and
(b) a de facto relationship can exist even if one of the persons is legally married to someone else
or in another de facto relationship.
Subsection 1(b) has the effect that two people are not in a de facto relationship if they are ‘related by
family’. Subsection 6 specifies that two people are ‘related by family’ if:
(a) one is the child (including an adopted child) of the other; or
(b) one is another descendant of the other (even if the relationship between them is traced
through an adoptive parent); or
(c) they have a parent in common (who may be an adoptive parent of either or both of them).
For this purpose, disregard whether an adoption is declared void or has ceased to have effect.
It is important to note that the various referring laws excluded a breakdown of relationship by reason of
death, and this is reflected in the definition of ‘breakdown’ as it applies to de facto relationships in s
4(1):
"breakdown" :
…
(b) in relation to a de facto relationship, does not include a breakdown of the relationship by reason of
death.
Note that a similar provision applies to marriages via sub-paragraph (a).
Nevertheless, under s 90SM(8):
[i]f a party to the de facto relationship dies after the breakdown of the de facto relationship, but before
property settlement proceedings are completed:
(a) the proceedings may be continued by or against, as the case may be, the legal personal
representative of the deceased party and the applicable Rules of Court may make provision in
relation to the substitution of the legal personal representative as a party to the proceedings
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Prerequisites for an Application Under the De Facto Provisions of the Family Law Act
Length of Relationship
Section 90SB contains the following gateway provision:
A court may make an order under section 90SE [power of court in maintenance proceedings], 90SG
[urgent maintenance cases] or 90SM [alteration of property interests], or a declaration under section 90SL
[declaration of interests in property], in relation to a de facto relationship only if the court is satisfied:
(a) that the period, or the total of the periods, of the de facto relationship is at least 2 years; or
(b) that there is a child of the de facto relationship; or
(c) that:
(i) the party to the de facto relationship who applies for the order or declaration made substantial
contributions of a kind mentioned in paragraph 90SM(4)(a), (b) or (c); and
(ii) a failure to make the order or declaration would result in serious injustice to the applicant; or
(d) that the relationship is or was registered under a prescribed law of a State or Territory.
Note that s 90SB does not apply to the parties’ ability to enter into a valid binding financial agreement
under Part VIIIAB.
Note also that the time constraint in s 90SB does not form part of the definition of ‘de facto relationship’
in s 4AA(1). Accordingly, one may be in a de facto relationship for some purposes (for example,
entering into a binding financial agreement under s 90UC) but not for others (eg having orders made
under s 90SM).
Timing of Breakdown
Part 2 of Schedule 1 of the 2008 Act contains the transitional provisions. Item 86(1) of Division 2
specifies that:
[s]ubject to item 86A, Parts VIIIAB and VIIIB, and subsection 114(2A), of the new Act do not apply in
relation to a de facto relationship that broke down before commencement.
Item 86A in its turn deals with opting in, and will be dealt with below.
Geographical Requirements
S 90SK covers the geographical requirement for property applications. Note that s90SD mirrors this
provision in relation to maintenance. S 90SK reads as follows:
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(1) A court may make a declaration under section 90SL, or an order under section 90SM, in relation to
a de facto relationship only if the court is satisfied:
(a) that either or both of parties to the de facto relationship were ordinarily resident in a
participating jurisdiction when the application for the declaration or order was made (the
application time ); and
(b) that either:
(i) both parties to the de facto relationship were ordinarily resident during at least a third of
the de facto relationship; or
(ii) the applicant for the declaration or order made substantial contributions in relation to
the de facto relationship, of a kind mentioned in paragraph 90SM(4)(a), (b) or (c);
in one or more States or Territories that are participating jurisdictions at the application time;
or that the alternative condition in subsection (1A) is met.
(1A) The alternative condition is that the parties to the de facto relationship were ordinarily resident in a
participating jurisdiction when the relationship broke down.
(2) For the purposes of paragraph (1)(b), a State need not have been a participating jurisdiction during
the de facto relationship.
Note that originally, Western Australia and South Australia were not participating jurisdictions. Under
the South Australian Commonwealth Powers (De Facto Relationships) Act 2009, South Australia
referred its powers, and so only Western Australia remains outside the scheme.
The Effect of Marriage
According to s 90SC(1), Division 2 of Part VIIIAB (other than subsections 90SJ(2) to (5) relating to
maintenance orders) ceases to apply in relation to a de facto relationship if the parties to the de facto
relationship later marry each other.
Nevertheless, s90SC(2) provides as follows:
(2) Despite subsection (1), a declaration, order or injunction:
(a) made in property settlement proceedings under this Division in relation to the de facto
relationship; and
(b) in force when the parties marry each other;
may, after the marriage, be enforced, varied or set aside in accordance with this Act.
(3) If a declaration, order or injunction is set aside as described in subsection (2), another declaration,
order or injunction may be made under this Division in substitution for that declaration, order or
injunction.
Further, in relation to binding financial agreements, note that s 90UJ(3) provides that a Part VIIIAB
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financial agreement ceases to be binding if, after making the agreement, the parties to the agreement
marry each other.
Opting In As indicated above, Part 2 of Schedule 1 of the 2008 Act contains the transitional provisions, and item
86A of Division 2 sets out the mechanisms for opting in to the new regime. The relevant provisions are
worded as follows:
(1) The parties to a de facto relationship that broke down before commencement may choose for Parts
VIIIAB and VIIIB, and subsection 114(2A), of the new Act to apply in relation to the de facto
relationship.
Under subitem 2, a choice opting in to the new system can be made if
(a) the choice is unconditional; and
(b) subitems (3), (4) and (5) are satisfied for the choice.
This subitem also specifies that a choice to opt in is irrevocable. Subitems 3 -5 referred to in subitem
2(b) above read as follows:
(3) This subitem is satisfied for the choice if no order (other than an interim order) under a preserved
law of a State or Territory has been made by a court in relation to either of the following:
(a) how all or any of the:
(i) property; or
(ii) financial resources;
that either or both of the parties to the de facto relationship had or acquired during the de facto
relationship is to be distributed;
(b) the maintenance of either of the parties to the de facto relationship.
(4) This subitem is satisfied for the choice if:
(a) the parties have not made a designated State/Territory financial agreement in relation to their
de facto relationship; or
(b) if the parties have made such an agreement, that agreement has ceased to have effect
without:
(i) any property being distributed; or
(ii) any maintenance being paid;
under the agreement.
(5) This subitem is satisfied for the choice if:
(a) the choice is in writing and signed by both of the parties to the de facto relationship; and
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(b) each of the parties was provided, before the choice was signed by him or her, with:
(i) independent legal advice from a legal practitioner about the advantages and
disadvantages, at the time that the advice was provided, to the party of making the
choice; and
(ii) a signed statement by the legal practitioner stating that this advice was given to the
party.
(6) For the purposes of Part VIIIAB of the new Act, a choice can be included in a Part VIIIAB financial
agreement for which the parties are the spouse parties.
Providing a certificate under subitem 5 is not something to be undertaken lightly. Given the very
different outcomes that could be expected under the NSW Property (Relationships) Act 1984 and the
Family Law Act, the cases where neither party’s solicitor could provide such a certificate without
considerable professional liability risks being incurred must be vanishingly small.
Under some circumstances the Court may set aside a choice. These are covered in subitems 7 to 9 of
Part 2 of Schedule 1 of the 2008 Act:
(7) A court may make an order setting aside a choice if the court is satisfied that, having regard to the
circumstances in which the choice was made, it would be unjust and inequitable if the court does not
set the choice aside.
(8) A court setting aside a choice under subitem (7) may make such order or orders (including an order
for the transfer of property) as it considers just and equitable to, so far as is practicable, return the
rights of:
(a) the parties to the de facto relationship; and
(b) any other interested persons affected by the choice;
to their position immediately before the choice was made.
(9) Subsections 90UM(8) and (9) of the new Act apply in relation to setting aside a choice as if:
(a) a reference in those subsections to subsection 90UM(1) or (6) of the new Act were a
reference to subitem (7) or (8); and
(b) the reference in those subsections to section 90UM of the new Act were a reference to this
item.
Property Settlement and Maintenance Following is a table setting out the parallel provisions of the Family Law Act dealing respectively with
married couples and de facto couples, based on a similar table produced by His Honour Justice Garry
Watts writing extra-judicially in 200810.
10 De Facto Property under the Family Law Act, December 2008.
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Table 1: De Facto Mirror Provisions in the FLA
Subject matter Matrimonial Cause De Facto Financial Cause
Binding Financial Agreements exclude the jurisdiction s71A s90SA(1)
Spousal Maintenance s74 s90SE
Matters to take into account in maintenance
proceedings
s75(2) s90SF(3)
Urgent maintenance s77 s90SG
Declarations of interests in property s78 s90SL
Alteration of property interests s79 s90SM
Just & Equitable s79(2) s90SM(3)
Matters to take into account s79(4) s90SM(4)
Varying and setting aside orders altering property s79A s90SN
General Powers s80 s90SS(1)
Duty to end financial relationships s81 s90ST
Modification of maintenance orders s83 s90SI
Stamp Duty s90 s90WA
Binding Financial Agreements (BFAs) Pt VIIIA Div 4 Pt VIIIAB
BFAs before marriage/cohabitation s90B s90UB
BFAs during marriage/cohabitation s90C s90UC
BFAs after divorce/breakdown s90D s90UD
Formal requirements of BFAs s90G(1) s90UJ(1)
Setting aside BFAs s90K s90UM
Validity, enforceability and effect of BFAs s90KA s90UN
Orders and injunctions binding third parties Pt VIIIAA Div 3 Pt VIIIAB
Apart from the geographical and time limit issues referred to above, for most purposes the property
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and maintenance provisions substantially mirror each other. There are significant differences in at least
two respects, however. The first is in the absence of a s85A equivalent and in the binding financial
agreement provisions, both of which are dealt with below.
The Absence of a S 85A Equivalent
Until very recently s 85A (dealing with ante-nuptial or post-nuptial settlements) has received little
attention from family lawyers. The section reads as follows:
(1) The court may, in proceedings under this Act, make such order as the court considers just and
equitable with respect to the application, for the benefit of all or any of the parties to, and the
children of, the marriage, of the whole or part of property dealt with by ante-nuptial or post-nuptial
settlements made in relation to the marriage.
(2) In considering what order (if any) should be made under subsection (1), the court shall take into
account the matters referred to in subsection 79(4) so far as they are relevant.
(3) A court cannot make an order under this section in respect of matters that are included in a financial
agreement.
There is no de facto equivalent to s 85A in Part VIIIAB, presumably because s 85A itself has received
so little use over the years and so has perhaps come to be seen by many as a redundant provision.
Given its history of neglect, what was the thinking behind the original insertion of s 85A in the Family
Law Act in 1983? At paragraph 209 of Kennon v Spry11, Kiefel J noted:
It is not difficult to infer that s 85A was directed to the use of discretionary family trusts and other structures
used for holding assets acquired in the course of a marriage, for tax-related and other purposes. Vehicles
such as these had been in common use for some time prior to 1983. It is apparent that s 85A was intended
to give the Court power to deal with property which could not be the subject of an order under s 79, but
which accorded with current conceptions of what was a "settlement" of property in matrimonial law.
Be that as it may, litigants and the Family Court have largely had resort to s 79 in order to deal with the
assets of parties, notwithstanding the inherent limitations of the definition of ‘property’ in s 4. Certainly
the majority in Kennon v Spry did not feel the need to venture far beyond s 79 in opening up the
Court’s capacity to unpack discretionary trust arrangements. Nevertheless, the majority decision still
relied on the threading together of a number of related items of property to bring the assets of the
relevant family trust into the matrimonial property pool. The majority found that the wife had an
equitable right to due consideration as a potential beneficiary, although this of course did not amount
to a vested interest in the trust property. She was also found to have a chose in action for the due
administration of the trust, which was, however, similarly worthless without its link to a trustee subject
to the jurisdiction of the Court who had real legal power to effect a distribution in her favour, which is
11 [2008] HCA 56.
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what the majority found the husband had. It was irrelevant that the husband could not benefit under the
Deed; what was important was that his “power to apply assets or income of the Trust to Mrs
Spry…was able to be treated…as a species of property12”. Thus there were several articulated links
between the wife and the valuable assets of the trust: there was her equitable chose in action for due
administration of the trust; there was a trustee who was a party to the marriage; there was the trustee’s
fiduciary duty to the objects to give due consideration to the question of whether and in what way to
benefit them; and there was the actual power in that trustee potentially to make a distribution of the
entirety of the trust property in the wife’s favour (itself another species of property) regardless of the
fact that she was not a beneficiary but merely one of a class of objects of the trust. It was the sum of
these articulated proprietary links that attracted s.7913.
Kiefel J took a very different approach in relying on s 85A to arrive at a similar result. Because her
logic does not require the trust to be effectively controlled by one of the parties, her reasoning is
potentially much more far reaching than the majority’s in opening up the Court’s power to adjust
interests in family trusts, so it is worth attempting to follow her logic.
At 225 Her Honour notes that:
"Settlement" is to be given a broad meaning consonant with the intention of s 85A to bring discretionary
family trusts within the ambit of the Act. "Property" is to be read as including those assets to which the
parties have contributed throughout the course of their marriage and which are held for their use and
benefit. The Trust assets constitute property, much of which was obtained by way of the parties'
contributions to the marriage. The assets therefore attract the operation of s 85A. Further, as shall become
clear, on each occasion that property was transferred to the Trust, the parties "dealt with" their property,
and effected settlements within the meaning of s 85A. The Trust property represents contributions of the
parties and is held on terms of a settlement. It is "property dealt with by ... settlements".
She continues at 229:
There appears to be no reason why each disposition of property to the Trust, from the time of the parties'
marriage, cannot be viewed as a separate trust created at that time, albeit on the terms of the Trust. It has
been said that it is sufficient for the establishment of a trust that property is impressed with a trust
obligation. In any event the conception of a settlement in s 85A is substantially informed by statutory
context and purposes.
Finally, at 231 Kiefel J notes that:
[t]he trustees also placed reliance upon the description of the beneficiaries of the Trust, which extended
beyond the husband and wife and the children of the marriage. By this means it was sought to deny the
necessary nuptial element of the Trust. The husband's sisters and their issue also fell within the class of
beneficiaries. The question of the impact of any order under s 85A upon those persons may be put to one
side for present purposes. So far as concerns the character of the Trust, their inclusion does not deny the
12 [2008] HCA 56 at paragraph 79 per French CJ. 13 [2008] HCA 56 at paragraph 137, per Gummow and Hayne JJ
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nuptial element. Regard must be had to the circumstances pertaining to the Trust, for the purposes of
s 85A. The nuptial element can readily be seen by the contribution made by the parties to the marriage to
the Trust and the holding of that property for their benefit. The fact that the other beneficiaries may have
received some, undisclosed, distribution from the Trust at some point does not detract from its essential
character.
If correct, the net effect of Kiefel J’s judgment would be to significantly increase the Court’s reach into
discretionary family trusts. As indicated above, under Her Honour’s reasoning, there would be no need
to find a trustee who was a party to the marriage, or even, perhaps, a discretionary family trust
established by one of the parties if resort is had to s 85A. It might perhaps be sufficient to attract s 85A
under Her Honour’s approach if there is a discretionary trust set up by one of the parties’ parents to
which one of the parties contributed, either directly or indirectly. Being employed by a family business
tied to the family trust may well be enough to establish an indirect disposition to the trust, and therefore
a ‘settlement’ for the purposes of s 85A.
In a recent journal article Tim North SC wrote that
the possibility that we are witnessing the awakening of s 85A after 25 years of hibernation is … a
prospect that ought excite the interest of all who practice in this jurisdiction. At the least, no one can
afford to ignore its possible reach.14
However, given that there is no s85A equivalent in Part VIIIAB, at this stage this reach will not extend
into de facto property causes. This may lead to very different results in de facto and marital matters
where family trusts are involved.
Binding Financial Agreements for De Facto Couples The provisions relating to de facto binding financial agreements are as follows:
BFAs exclude the jurisdiction: s90SA(1)
BFAs: Div 4 Pt VIIIAB
Financial agreements before cohabitation: s90UB
Financial agreements during cohabitation: s90UC
Financial agreements after breakdown: s90UD
Formal requirements of BFAs: s90UJ(1)
14 Tim North SC, ‘Spry v Kennon: The Last Word’, (2010) 21(1) Australian Family Lawyer 15 at 25.
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Setting aside BFAs: s90UM
Validity, enforceability and effect of BFAs: s90UN
Not including termination agreements under s90UL(1)(b), the Part VIIIAB agreements are as follows
(including subsequent agreements terminating such agreements under s90UL(1)(a)):
1. s90UB: financial agreement before de facto relationship;
2. s90UC financial agreement during de facto relationship; and
3. s90UD financial agreement after breakdown of a de facto relationship.
All of the above agreements (including subsequent agreements terminating such agreements under s
90UL(1)(a)) have as their subject matter certain ‘specified matters’, one or more of which must be
included for the agreement to constitute a ‘financial agreement’.
S 90UB(2) casts the ‘specified matters’ in the following terms:
(a) how all or any of the:
(i) property; or
(ii) financial resources;
of either or both of the spouse parties at the time when the agreement is made, or at a later time
and during the de facto relationship, is to be distributed;
(b) the maintenance of either of the spouse parties.
Sections 90UC(2) and 90UD(2) adapt this wording to their different contexts.
While a financial agreement must contain at least one of the relevant ‘specified matters’, each of the
Part VIIIA agreements (covering married parties) may also include ‘matters incidental or ancillary’ to
the ss90B-D(2) matters, as well as ‘other matters’ (ss90B-D(3)). Part VIIIAB agreements may also
include ‘matters incidental or ancillary’ to the ss90UB-UD(2) matters, but, significantly, do not provide
for ‘other matters’. This is an artefact of the limitation of the referral of power from the States, which
was confined to financial matters arising out of the breakdown of a relationship (other than by reason
of death).
Given the above, it is clear that spousal maintenance is covered by Part VIIIAB agreements, and by
virtue of section 90UH child maintenance issues could be included (this is in fact specifically
contemplated by the note to s90UH(1)).
Special care now needs to be taken, however, if it is intended to make the agreement double up as a
binding child support agreement under s80D of the Child Support (Assessment) Act 1989 (‘the
Assessment Act’). This is because under s80D(2)(c) of the Assessment Act a binding child support
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agreement must contain a statement in substantially the same format as the statement that was
required to be attached to BFAs prior to the commencement of the Federal Justice System
Amendment (Efficiency Measures) Act 2009. Since the requirements for BFAs have now been
overhauled (see below) and are therefore out of step with the formal requirements for binding child
support agreements, there is a risk that attempting to incorporate both types of agreement in the one
document could give rise to uncertainty. Given the Full Court’s approach in Kostres and Kostres15 (see
the case note at the end of this paper), any uncertainty in a BFA is plainly to be avoided.
The inclusion of superannuation is not a problem for a Part VIIIAB agreement so long as it is not the
only subject matter of the agreement. There may be an issue however if the only subject matter of the
agreement is superannuation. This is because superannuation has not traditionally been regarded as
property for the purposes of s4 of the FLA. While the ‘specified matters’ applying to financial
agreements include property or financial resources, the Full Court in Coghlan and Coghlan16 identified
superannuation as ‘another species of asset,’ rather than as a financial resource, which may or may
not cause some problem here.17
While other matters (such as an unenforceable parenting plan, for example) could certainly be
included in a Part VIIIA agreement, this is not the case with a Part VIIIAB agreement, which, for the
reasons alluded to above, should be limited to the ss90UB-UD(2) financial matters, and matters
incidental or ancillary thereto.
Setting Aside BFAs
Sections 90UM and 90UN of the FLA refer to a number of circumstances that must be carefully
considered at an early stage in advising clients in relation both to financial agreements and to
agreements terminating financial agreements.
Firstly, it is important that practitioners drafting these agreements have a solid understanding of the
law of contracts, since under s 90UN this is the starting point for the validity, enforceability and
effectiveness of financial agreements under the FLA.
S 90UM sets out a number of circumstances which will trigger the Court’s power to set aside a
financial agreement. These include (but are not limited to) the Court being satisfied that:
1. the agreement was obtained by fraud;
2. the agreement was entered into by a party for purposes that included defrauding a creditor of
the party or with reckless disregard for the interests of creditors (the Rich & Rich18
amendment);
15 (2009) FLC ¶93-420. 16 (2005) FamCA 429. 17 For further detail on this issue see Mark MacDiarmid, ‘What Species of Asset? Binding Financial Agreements that Deal Only With Superannuation’ 47(11) Law Society Journal (2009) 71. 18 Introduced in response to the decision in ASIC v Rich & Rich (2003) FamCA 114.
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3. the agreement was entered into by a party for purposes that included defeating the interests of
a de facto partner of a spouse party, or with reckless disregard for the interests of that person;
4. the agreement is void, voidable or unenforceable;
5. since the making of the agreement circumstances have arisen that make it impracticable for the
agreement or a part of the agreement to be carried out;
6. since the making of the agreement, a material change in circumstances has occurred (being
circumstances relating to the care, welfare and development of a child of the relationship) and,
as a result of the change, the child or, if the applicant has caring responsibility for the child, a
party to the agreement will suffer hardship if the Court does not set the agreement aside;
7. in respect of the making of a financial agreement—a party to the agreement engaged in
conduct that was, in all the circumstances, unconscionable.
The Formal Aspects of the Agreement
The FLA treats the defining characteristics of ‘financial agreements’ separately from the steps
necessary to render those financial agreements ‘binding’.
The part VIIIAB approach to the definition of ‘financial agreement’ can be seen from s90UB(1) (whose
wording is adjusted across sections 90UC(1) and 90UD(1)):
(1) If:
(a) people who are contemplating entering into a de facto relationship with each other make
a written agreement with respect to any of the matters mentioned in subsection (2) in the
event of the breakdown of the de facto relationship; and
(b) at the time of the making of the agreement, the people are not the spouse parties to any
other Part VIIIAB financial agreement that is binding on them with respect to any of those
matters; and
(c) the agreement is expressed to be made under this section;
the agreement is a Part VIIIAB financial agreement. The people may make the Part VIIIAB
financial agreement with one or more other people.
In summary, the requirements for an agreement to be a ‘financial agreement’ are that:
1. the agreement is in writing;
2. the parties to the relationship are not spouse parties to other Part VIIIAB financial agreements;
and
3. the agreement is expressed to be made under the relevant section.
Note also that under s 90UF(1), separation declarations must be made in order to give force to any
provision of a BFA
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to the extent to which it deals with how, in the event of the breakdown of the de facto relationship, all or
any of the property or financial resources of either or both of the spouse parties:
(a) at the time when the agreement is made; or
(b) at a later time and during the de facto relationship;
are to be dealt with,
unless either or both parties die (s 90UF(2)). The note to s 90UF(2) reads as follows:
[t]his means the financial agreement will be of force and effect in relation to the matters mentioned in
subsection (1) from the time of the death(s).
In a recent paper, Paul Doolan19 points out that changes made to s90DA (the marital equivalent of s
90UF) by the Family Law Amendment (De Facto Financial Matters and other Measures) Act 2008,
mean that that section does not, unlike its predecessor, refer to provisions relating to the maintenance
of either of the spouse parties after the termination of the marriage by divorce having no force or effect
until a separation declaration is made. Similarly, s90UF does not refer to maintenance. This appears to
leave some uncertainty as to when maintenance provisions take effect, although Doolan’s suggested
reading of the Act is that they probably take effect when the Agreement is signed by both parties.
In the same paper, Doolan notes that s 90SJ(1) provides that an order
with respect to the maintenance of a party to a de facto relationship in accordance with this Division
ceases to have effect upon:
(a) the death of the party; or
(b) the death of the person liable to make payments under the order.
S 82(1) has substantially the same effect in relation to maintenance orders by the Court in the
matrimonial causes realm (as opposed to arrangements effected by a BFA).
However, Doolan notes that according to s 90H (the marital equivalent of s 90UK):
[a] financial agreement that is binding on the parties to the agreement continues to operate despite the
death of a party to the agreement and operates in favour of, and is binding on, the legal personal
representative of that party.
S 90UK contains the following additional note:
If the parties are still in the de facto relationship when one of them dies, the de facto relationship is not
taken to have broken down for the purposes of enforcing the matters mentioned in the financial
agreement (see the definition of breakdown in subsection 4(1)).
Because of the consequent risk that a maintenance obligation contained in a BFA will survive the
death of the payer, Doolan recommends inserting a clause specifically terminating the obligation to pay
19 ‘Financial Agreements: Everything You Always Wanted to Know, But Were Too Afraid to Ask’, paper delivered at the Family Law Section of the Law Council of Australia’s 14th Annual Family Law Intensive in Melbourne, 1 May 2010.
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maintenance in the event of the death of either party, re-marriage of the payee, the payee entering into
a de facto relationship for more than 3 months or the payer becoming insolvent, or after the passage of
a nominated sunset date20.
Making financial agreements binding prior to 4 January 2010
From 2004 up to the commencement of the Federal Justice System Amendment (Efficiency Measures)
Act 2009 on 4 January 2010 (‘the Amending Act’), sections 90G(1), 90J(1) (Part VIIIA agreements)
and 90UJ(1) and 90UL(1) (Part VIIIAB agreements) all contained wording substantially in the following
terms (the following is taken from the then in force s90UJ(1)):
(1) A Part VIIIAB financial agreement (other than an agreement covered by section 90UE) is binding
on the parties to the agreement if, and only if:
(a) the agreement is signed by both parties; and
(b) the agreement contains, in relation to each spouse party to the agreement, a statement
to the effect that the party to whom the statement relates has been provided, before the
agreement was signed by him or her, as certified in an annexure to the agreement, with
independent legal advice from a legal practitioner as to the following matters:
(i) the effect of the agreement on the rights of that party;
(ii) the advantages and disadvantages, at the time that the advice was provided, to
the party of making the agreement; and
(c) the annexure to the agreement contains a certificate signed by the person providing the
independent legal advice stating that the advice was provided; and
(d) the agreement has not been terminated and has not been set aside by a court; and
(e) after the agreement is signed, the original agreement is given to one of the parties and a
copy is given to the other.
A succession of cases21 took varied approaches to the rigour with which this form of wording was
expected by the Court to be applied, culminating in Black & Black22 in 2008.
In setting aside a BFA, the Full Court (Faulks DCJ, Kay and Penny JJ) in Black & Black applied the
requirements of s90G(1) literally and strictly, echoing the emphasis Collier J in J & J23 had placed on
the words ‘if, and only if’ that appear at the beginning of the section.
Paragraphs 43 – 45 of the Black & Black judgement provide a succinct summary of the relevant facts
and reasoning: 20 Ibid at 22. 21 Notably J & J (2006) FamCA 442; Millington & Millington (2007) FamCA 687; and Ruzic & Ruzic (2007) FamCA 473. 22 (2008) FLC ¶93-357. 23 (2006) FamCA 442.
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43. Subsection 90G(1)(b) (as it was prior to the 2004 amendments) expressly required that the
agreement must contain a statement from each party that, before they executed the agreement,
they received independent legal advice from a legal practitioner in relation to the matters referred to
in (i) to (iv). The section went on to provide that the agreement must also annexe a certificate
executed by that legal practitioner stating that the advice in relation to the matters referred in (i) to
(iv) was provided to that party.
44. The agreement entered into by the parties in this case did not refer to the specific
requirements detailed in s 90G, although the certificate did. [emphasis added]
45. Recital R and clause 29 of the agreement, set out at paragraphs 23 and 24 above, dealt
predominantly with advice in relation to the legal implications of the agreement and each party's
rights and obligations. These statements did not meet all the requirements set out in subsection
90G(1)(b), particularly there was no reference to advice in relation to whether the agreement was
fair or prudent. In our view, such an omission meant that the agreement did not comply with the
provisions of s 90G and was not binding upon the parties. It follows that we prefer the approach
taken by Collier J in J and J (above) to that taken by the trial judge in this case. We are of the view
that strict compliance with the statutory requirements is necessary to oust the court's
jurisdiction to make adjustive orders under s 79. [emphasis added]
Federal Justice System Amendment (Efficiency Measures) Act 2009
In response to the Black and Black decision, as of 4 January 2010, sections 90G, 90J, 90UJ and 90UL
now contain wording substantially in the following terms (taken from the current s90UJ):
(1) Subject to subsection (1A), a Part VIIIAB financial agreement (other than an agreement covered
by section 90UE) is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal
advice from a legal practitioner about the effect of the agreement on the rights of that
party and about the advantages and disadvantages, at the time that the advice was
provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a
signed statement by the legal practitioner stating that the advice referred to in
paragraph (b) was provided to that party (whether or not the statement is annexed to
the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse
party is given to the other spouse party or to a legal practitioner for the other spouse
party; and
(d) the agreement has not been terminated and has not been set aside by a court.
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Note: For the manner in which the contents of a financial agreement may be
proved, see section 48 of the Evidence Act 1995.
(1A) A financial agreement is binding on the parties to the agreement if:
(a) the agreement is signed by all parties; and
(b) one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the
agreement; and
(c) a court is satisfied that it would be unjust and inequitable if the agreement were not
binding on the spouse parties to the agreement (disregarding any changes in
circumstances from the time the agreement was made); and
(d) the court makes an order under subsection (1B) declaring that the agreement is binding
on the parties to the agreement; and
(e) the agreement has not been terminated and has not been set aside by a court.
(1B) For the purposes of paragraph (1A)(d), a court may make an order declaring that a Part VIIIAB
financial agreement is binding on the parties to the agreement, upon application (the
enforcement application ) by a spouse party seeking to enforce the agreement.
(1C) To avoid doubt, section 90UN applies in relation to the enforcement application.
In addition, the new provisions operate retrospectively to validate financial agreements and termination
agreements made on or after 27 December 2000 and before the commencement of the new
provisions. Significantly, under item 17(5) of Schedule 5 of the Amending Act, the certifying
requirements of s90UJ(1)(c) and (ca) do not apply to pre-4 January 2010 agreements, so the format of
certificates attached to those agreements is no longer an issue. Nevertheless, the agreement in
question must not have been set aside by a Court, so agreements that have been rejected by the
courts over the last few years cannot be resuscitated.
After Black and Black, but prior to the above amendments, practitioners could draw some comfort from
the fact that although the formal requirements were applied strictly, those requirements could be
expressed with some certainty, and compliance could be determined from an examination of the
document itself. One effect of these changes is that we can now no longer rely on the face of the
document to ascertain formality: whether or not the advice required to be given under s 90UJ(1)(b) has
in fact been given cannot be ascertained from the agreement if there is no solicitor statement attached.
Even if such a statement is attached, it may be difficult to ascertain whether the advice purportedly
given was accurate, or, for that matter, even given at all. Recall that under the old s 90UJ(1) the
obligation was simply to include a statement that certain advice had been given and to attach a
certificate from the person giving the advice stating that the advice had been given; now,
independently of what is said in the agreement or in any statement given to the other party there is an
obligation for certain advice to have been given. Further, the words ‘if, and only if’ still appear at the
head of the section, so there can be little doubt that these requirements will be applied strictly.
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In addition, the relief contemplated by 90UJ(1A) rides on the Court forming the view that “it would be
unjust and inequitable if the agreement were not binding on the spouse parties”; it may be that without
fully exploring the first three steps24 of a normal s79 property settlement application, the Court will be
reluctant to come to a final view on the injustice and inequity of the failure of a financial agreement that
does not comply with s90G(1). If that step becomes necessary, is there really anything to be gained
from having a BFA in the first place?
The current position
In summary, the following requirements must be met by Part VIIIAB financial agreements and
termination agreements entered into after 4 January 2010:
1. the agreement must be in writing;
2. the agreement should not fall foul of the prohibitions contained in s 90UM;
3. the parties to the relationship must not be spouse parties to other Part VIIIAB financial
agreements;
4. the agreement must be expressed to be made under the relevant section of Part VIIIAB (that is,
the appropriate section from ss90UB-UD);
5. the agreement must not have been set aside by a Court;
6. the parties must not have subsequently married; and
7. separation declarations must be made in order to give force to provisions relating to ‘all
or any of the property or financial resources of either or both of the spouse parties’ that take
effect after the breakdown of the relevant relationship (s 90UF).
Further, for such agreements to be binding:
1. each party must have received independent legal advice about:
a. the effect of the agreement on the rights of that party; and
b. the advantages and disadvantages, at the time that the advice was provided, to that
party of making the agreement; and
2. each party’s legal practitioner must have signed a statement to the effect that the party has
been provided with independent legal advice about the specified matters, and a copy of that
statement must have been provided to the other party or the other party’s legal practitioner
although that statement need not have been attached to the agreement and the statement
may have been provided either before or after the agreement was signed.
24 For the Court’s preferred approach to a s79 application see, eg, Hickey & Hickey & Attorney-General for the Commonwealth of Australia [2003] FamCA 395.
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Finally, even if the s90UJ(1)(b), (c) and (ca) requirements are not met, the agreement may still be
binding if:
a. a court is satisfied that it would be unjust and inequitable if the agreement were not
binding on the spouse parties to the agreement (disregarding any changes in
circumstances from the time the agreement was made); and
b. the court makes an appropriate order declaring that the agreement is binding on the
parties to the agreement; and
c. the agreement has not been terminated and has not been set aside by a court.
In the teeth of the above complexities, it should also be born in mind that even if an agreement does
not amount to a financial agreement (binding or otherwise) under the FLA, it may still amount to a
contract at common law or equity and may still therefore have consequences for the parties entering it.
The termination of financial agreements.
According to s 90UL, other than by marriage, de facto financial agreements may only be terminated in
one of the following two ways:
1. including a provision to that effect in another Part VIIIAB financial agreement; or
2. making a written agreement (a ‘Part VIIIAB termination agreement’).
In relation to the first option, the same requirements that apply to all other BFAs apply to BFAs that
include a provision terminating an earlier BFA.
In relation to the second option, s 90UL(2) and following mirror the requirements of s90UJ(1) and
following in relation to the provision of independent legal advice and so on.
Conclusion
On the face of it, BFAs do provide a means for parties to arrange their financial affairs without the
Family Court’s supervision or intervention. The Federal Justice System Amendment (Efficiency
Measures) Act 2009 has in some ways made the task of formal compliance easier, but in other
respects muddied the waters. By the same token, the Full Court decision in Kostres & Kostres makes it
clear that even in the teeth of formal compliance with the terms of the FLA, the Full Court takes an
approach to contractual construction that seems narrower and more pedantic than that which applies
in other civil courts.
At bottom, there are two significant issues that must be considered by any practitioner advising a client
on the desirability of entering into one of these agreements:
1. the formal requirements for BFAs are technical, complex and potentially confusing,
notwithstanding the recent amendments; and
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2. there is now an unquantifiable risk that an agreement that otherwise complies with the
requirements set out in Parts VIIIA or VIIIAB (as appropriate) of the FLA may be set aside for
uncertainty if there is a dispute about the correct construction of the agreement.
It seems clear that BFAs present the practitioner with intimidating professional liability issues. The
watchword and countersign here must surely be: proceed with extreme caution, if at all.
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Case Note: Kostres & Kostres [2009] FLC ¶93-‐420 This case was an appeal against orders made by Federal Magistrate Wilson on 17 October 2008. The
Full Court (Bryant CJ, Boland & Jordan JJ) delivered its judgment on 15 December 2009.
According to paragraphs 1 – 3 of the judgment:
1. Two days before their marriage in January 2002 Mr Kostres and Ms Kostres executed a financial
agreement in order to regulate their financial affairs during their marriage, and to govern such affairs
in the event the marriage did ‘not work out’.
2. This appeal by the husband, and cross-appeal by the wife, raise for determination how terms of a
financial agreement made under Part VIIIA of the Family Law Act 1975 (Cth) (‘the Act’) should be
construed, and the circumstances which may lead to such an agreement not being enforced.
3. It was not in dispute at the time the parties entered into the financial agreement they both mistakenly
thought the husband was a bankrupt. But they did not reveal this fact to the solicitors who drafted
and gave advice about the financial agreement. The parties’ mistaken belief about the husband's
status led to them acquiring assets which were not purchased in the parties’ joint names.
Notwithstanding the common mistake, the validity of the agreement was not in dispute by the parties;
the primary disagreement was around its proper construction. In submissions both before the Federal
Magistrate at first instance and then before the Full Court the parties contended for different
interpretations of a number of words and phrases appearing in the agreement, notably ‘acquired’,
‘assets’, ‘joint funds’ and ‘from their own moneys’. It became necessary, then, for the Court to consider
the appropriate construction of the agreement pursuant to s90KA.
In discussing the principles of contract law to be applied to the construction of the agreement, the Full
Court referred to the decision of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004)
219 CLR 165, with particular emphasis being placed on the High Court’s affirmation of ‘the principle of
objectivity by which the rights and liabilities of the parties to a contract are determined 25.’ It appears
from the judgment that the references to this case were derived from a secondary source, namely ‘the
learned authors of Cheshire and Fifoot's Law of Contract ( 9th edition) 26.’
According to the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, the ‘principle of objectivity’
amounts to the following:
[i]t is not the subjective beliefs or understandings of the parties about their rights and liabilities that
govern their contractual relations. What matters is what each party by words and conduct would have led
a reasonable person in the position of the other party to believe. References to the common intention of
the parties to a contract are to be understood as referring to what a reasonable person would understand
by the language in which the parties have expressed their agreement. The meaning of the terms of a
25 (2004) 219 CLR 165 at para 40. 26 [2009] FLC ¶93-420 at para 113
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contractual document is to be determined by what a reasonable person would have understood them to
mean. That, normally, requires consideration not only of the text, but also of the surrounding
circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v
BNP Paribas (2004) 78 ALJR 1045 at 1050-1051 [22]; 208 ALR 213 at 221) 27.
Significantly, the first two sentences of the above passage were not extracted by the Full Court in the
Kostres and Kostres judgment; given that the source quoted by their Honours was a textbook, they
may not have been aware of those sentences.
The above extracted discussion in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd was prompted by a
factual situation in which a company officer who signed a document had not read the conditions on the
reverse of the signed page:
Mr Gardiner-Garden signed a document which invited him to read the terms and conditions on the
reverse before signing. He was not rushed or tricked into signing the document. He chose to sign it
without reading it. He could have read it had he wished. Finemores did not set out to conceal from him
the terms and conditions on the document, or to encourage him not to read them. Finemores had no way
of knowing that he did not read the document. No case of mistake or non est factum is advanced28.
The High Court proceeded to refer to a number of authorities before concluding that they all accorded
with the well-known principle stated by Scrutton LJ in L'Estrange v F Graucob Ltd [1934] 2 KB 394 at 403
(‘L'Estrange v Graucob’) that ‘[w]hen a document containing contractual terms is signed, then, in the
absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly
immaterial whether he has read the document or not. 29’
It seems clear, therefore, that when the High Court was referring to ‘objectivity’ as a technique of
construction it was not referring to what the respective parties actually had in mind, since in the
L'Estrange v Graucob lineage of cases it was immaterial that the party seeking to avoid the contract
had not even read the conditions.
Pacific Carriers Ltd v BNP Paribas30 clarifies this further:
What is important is not Ms Dhiri's subjective intention, or even what she might have conveyed, or
attempted to convey, to NEAT about her understanding of what she was doing. The letters of indemnity
were, and were intended by NEAT and BNP to be, furnished to Pacific. Pacific did not know what was
going on in Ms Dhiri's mind, or what she might have communicated to NEAT as to her understanding or
intention. The case provides a good example of the reason why the meaning of commercial documents
is determined objectively: it was only the documents that spoke to Pacific31. The construction of the
letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have
27 (2004) 219 CLR 165 at para 40. 28 (2004) 219 CLR 165 at para 39. 29 (2004) 219 CLR 165 at para 46. 30 (2004) 78 ALJR 1045 at 1050-1051 [22]; 208 ALR 213 at 221. 31 Wilson v Anderson (2002) 76 ALJR 1306 at 1308-1309 [7]-[10]; 190 ALR 313 at 316-317.
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understood them to mean32. That requires consideration, not only of the text of the documents, but also
the surrounding circumstances known to Pacific and BNP, and the purpose and object of the
transaction33.
The Full Court in Kostres and Kostres noted with evident displeasure that it had not been directed to
any authorities on the interpretation of contractual terms34. Had the Full Court been directed in
submissions to the above High Court cases as primary texts, it is unlikely that the following critical
phrases employed by the High Court would have been overlooked by the Full Court:
What is important is not Ms Dhiri's subjective intention, or even what she might have conveyed, or
attempted to convey, to NEAT about her understanding of what she was doing35.
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern
their contractual relations36.
Instead, the Full Court proceeded with the task of construction by substituting and augmenting what it
saw as unclear wording with wording contended for by both parties in submissions. This process
proceeded as follows:
120. Clause 6 of the agreement provides as follows:
‘[Ms Kostres] and [Mr Kostres] agree that in the event that the marriage should end that the assets of each
of them either alone or jointly shall be dealt with as follows:
....
(c) Any assets of whatsoever kind or nature acquired during the relationship from joint funds shall be
divided equally between [Ms Kostres] and [Mr Kostres].
(d) Any assets acquired by either party from their own moneys shall remain the property of that
person.’
121. The interpretation for which both parties contend (albeit with differing effect) would require the
agreement to be read as follows:
‘[Ms Kostres] and [Mr Kostres] agree that in the event that the marriage should end that any interest,
either legal or equitable, in property held by or on behalf of either of them (including any interest
held personally, or in a company, trust or in any other entity) either alone or jointly shall be dealt with
as follows:
(c) any financial contribution to the purchase price of any interest, either legal or equitable, in property held by them or on behalf of them (including any interest held personally in a company,
on trust or in any other entity on their behalf) made during the relationship from funds derived from 32 Gissing v Gissing [1971] AC 886 at 906; Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 at 502; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. 33 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98. 34 (2009) FLC ¶93-420 at para 108. 35 Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045 at 1050-1051 [22]; 208 ALR 213 at 221. 36 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at para 40.
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their joint endeavours, [or in the case of the wife from jointly held funds] although not necessarily
contributed equally, shall be divided equally between [Ms Kostres] and [Mr Kostres];
(d) any financial contribution to the purchase price of any interest, either legal or equitable, in
property held personally, or by or on behalf of either party in a company, trust or any other entity by or on behalf of one party exclusively from their own moneys or borrowings shall remain the property of
that person.’ (our emphasis)37
It is surprising that in an exercise that was directed toward the objective ascertainment of what a
reasonable person would have understood the relevant words to mean at the time the agreement was
made, the Full Court actually embarked on a process that simply combined the submissions of the
parties’ lawyers before the Courts years after the agreement was made. The parties’ submissions may
have been relevant to the Court in its deliberations aimed at discovering the notional reasonable
person’s understanding, but it seems contrary to authority to combine those (unsurprisingly subjective
and tendentious) submissions and suggest that the resulting mish-mash demonstrates that the
contractual terms were incapable of being ascertained with certainty.
If this were the correct approach, one would expect that in all proceedings where the parties contend
for different contractual constructions, courts would by virtue of that fact alone find fatal uncertainty in
the terms. In fact, the correct approach seems to be somewhat different to that employed by the Full
Court. In Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd38 Barwick CJ
noted that
a contract of which there can be more than one possible meaning or which when construed can produce
in its application more than one result is not therefore void for uncertainty. As long as it is capable of a
meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application
[emphasis added]. The question becomes one of construction, of ascertaining the intention of the parties,
and of applying it. Lord Tomlin's words in this connexion in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT
503, at p 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord
Wright's words in Scammell (G) & Nephew Ltd v Ouston (1941) AC 251 is not "so obscure and so
incapable of any definite or precise meaning that the Court is unable to attribute to the parties any
particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In
the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of
commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of
intention, be resolved39.
The Full Court’s conclusion on the issue is as follows:
37 [2009] FLC ¶93-420 at paras 120-121. 38 [1968] HCA 8; (1968) 118 CLR 429; (1968) 41 ALJR 348 39 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8 at paragraph 9.
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129. While, for the purpose of construing the agreement a court should, as in the context of a commercial
agreement, apply an objective test of a reasonable bystander to the construction of an agreement, it
cannot give meaning to an agreement whose terms are so imprecise or ambiguous the parties’
intent cannot be discerned. This is particularly so when regard is had to provisions of Part VIIIA in
the overall context of the Act.
130. The differing arguments of the legal representatives in this case as to how the terms ‘acquired’,
‘assets’, ‘joint funds’ and ‘from their own moneys’ should be construed brings into sharp focus the
ambiguities in those terms found in the drafting of clause 6 of the agreement.
131. We think it is particularly relevant that this agreement, which the parties entered into with the
intention of dealing with their property and financial resources during their marriage and if it broke
down, did not reflect the terms of the section (s 79) which it sought to bypass. Clause 6 does not
refer to ‘contributions’, either financial or non-financial, nor does it, except in clause 6(d), refer to
‘property’ or ‘financial resources’. These terms are ones which are well known and the subject of a
considerable body of case law as to their interpretation.
132. We are satisfied that the construction each party asserts should be given to the terms of clauses
6(c) and (d) goes beyond that which can be objectively construed or implied to give effect to the
parties’ intentions at the time the agreement was made. This is readily apparent from our re-
construction of the agreement inserting the words which the parties’ respective legal representatives
assert must be read into clause 6 to give efficacy to it. The differing interpretation of the expressions
‘joint funds’ and ‘from their own moneys’ starkly illustrates our concern.
133. It is clear to us that the terms of the agreement are ineffective, particularly insofar as it is asserted
they deal with the right to seek division of the business, the trust and the two units. It follows from
that conclusion that the Federal Magistrate's decision to enforce the terms of the agreement as he
did constitutes appealable error40.
While the Full Court noted at paragraph 129 in the above extract that ‘it cannot give meaning to an
agreement whose terms are so imprecise or ambiguous the parties’ intent cannot be discerned,’ the
conclusion that this was the case in the Kostres agreement appeared to have been based on an
analysis of the parties’ rival submissions, rather than on the Court’s own independent analysis, which
was what the High Court laid down as the correct approach in Upper Hunter County District Council v
Australian Chilling & Freezing Co Ltd. Accordingly, the Full Court appears to have conflated
‘uncertainty of meaning’ and ‘absence of meaning or of intention’41.
With great respect, the Full Court in Kostres and Kostres demonstrated a surprising willingness to limit
its own ability to construe the terms of the agreement by placing what appears to have been an over-
emphasis on the parties’ dispute over those terms. This is further illustrated by its preference for the
words ‘contributions’, ‘property’ and ‘financial resources’ over the words ‘acquired’, ‘assets’, ‘joint
40 Kostres & Kostres [2009] FLC ¶93-420 at paras 129-133. 41 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8 at paragraph 9.
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funds’ and ‘from their own moneys’42. It is novel to suggest that words in ordinary English usage that
have not been the subject of intense judicial scrutiny in the family jurisdiction are somehow incapable
of being given clear meaning. After all, section 71A (and the de facto mirror provision s90SA) simply
provides that a BFA displaces jurisdiction under Part VIII, and the formal requirements for a BFA
nowhere include a requirement that the language of s79 and its de facto equivalent be mirrored in the
agreement.
The consequences of this decision for BFAs are dire indeed. Not only is the wording used in the
Kostres and Kostres agreement relatively common coinage in the precedents used by the legal
profession, but it seems clear that if in subsequent Family Court litigation one party contends for a
construction of contractual terms that radically differs from that suggested by the other, this
disagreement might cast a shadow backwards in time to the making of the agreement and
retrospectively generate fatal uncertainty.
For parties seeking to set aside BFAs there now seems to be a relatively simple and foolproof forensic
tool available to ensure success: whatever construction the other party is contending for, contend for
its opposite!
42 Kostres & Kostres [2009] FLC ¶93-420 at para 131.